European stocks slumped as French banks dropped as much as 14%

LONDON: European stocks slumped as France's three largest banks dropped as much as 14%, US equity futures tumbled and the euro touched a 10-year low against the yen amid speculation Germany is preparing for default by Greece. Treasuries and bunds rose.

The MSCI All-Country World Index headed for a bear market as the Stoxx Europe 600 Index retreated 3% and Standard & Poor's 500 Index futures sank 1.8% at 8:37 a.m. in New York. The euro trimmed losses after dropping as much as 2% to 103.90 yen and reversed its decline versus the dollar. Ten-year Treasury yields were little changed after earlier retreating. The extra yield investors demand to hold Greek 10-year bonds instead of German bunds rose to the highest since the euro started in 1999. Electricite de France SA fell 5.8% following an explosion at a nuclear waste facility.

Europe's recovery is "fragile" and sovereign-debt levels will keep rising through 2012 in the aftermath of the recession, the European Commission said today. Moody's Investors Service may cut the ratings of BNP Paribas SA, Societe Generale SA and Credit Agricole SA this week because of their Greek holdings, two people with knowledge of the matter said.

Officials in Chancellor Angela Merkel's government are debating how to shore up German banks should Greece fail to meet budget-cutting terms of its aid package, three coalition officials said Sept. 9.

"The market is in extreme fear," Charles Berry, a fixed- income trader at Landesbank Baden-Wuettemberg in Stuttgart, said in an interview. "It's the problem in the euro area that drove that sentiment."

The MSCI All-Country World Index dropped 1.6%, bringing the gauge to within one index point of a 20% slide from its high this year. The Stoxx Europe 600 Index fell to its lowest price-earnings ratio on estimated earnings since March 2009. A gauge of bank shares slid 4.4% as BNP Paribas lost 14%, Societe Generale slid 9.2% and Credit Agricole plunged 9.3%.